Crisis-wary banks to tighten lending rules, hike rates

Niranjan Bharati, ET BureauSep 22, 2008, 12.47am IST

NEW DELHI: Getting a loan for your dream home is going to be tougher as banks may tighten lending norms, apart from increasing interest rates. Bankers plan stricter lending norms soon for all types of loans including housing, auto and personal.

Banks may also follow more stringent norms for deciding the creditworthiness of individuals and corporates so that they do not run into a Lehman-like crisis.

"Credit growth will further moderate. Liquidity is available but we cannot go on a lending spree. Good due-diligence measures and strict verifying process would be adhered to for lending to any customer whether retail or corporate," Bank of India chairman & MD, T S Narayanaswamy, told ET.

Banks also plan to hike deposit rates to mobilise liquidity. This will result in an increase in lending rates.

Bankers feel interest rates may go up even if RBI refrains from hiking key rates in the October credit policy review. "We are evaluating an increase in deposit rates to mobilise more resources. If this happens, the next step would be to increase the lending rates to keep the net interest margin unaffected," a PSU banker said.

Another top banker said credit growth would moderate automatically without the intervention of either the regulator or the government.

"Earlier there was the expectation that RBI would increase the repo rate and the cash reserved ratio (CRR) once again in its credit review to tame inflation which is still ruling at around 12%, but now with the situation changed banks are themselves taking measures to moderate credit growth.

In such a situation, it is unlikely that the regulator would further tighten the policy," said the banker.

The RBI had reduced the statutory liquidity ratio (SLR) margin, for the first time in many years, to 24% on Friday as compared to 25% earlier and allowed the bankers to borrow money against the SLR bonds. The step was taken to ease out the liquidity crunch.

Bankers, however, feel there will now be less need for additional liquidity as central banks across the globe have started infusing money.

Earlier, there was a fear that Indian banks having their branches overseas would require to infuse large capital their to protect them.

"There was an impact on liquidity. Indian banks having their branches abroad were initially feeling the pinch and it seemed likely that the banks would require to infuse liquidity in those branches, but now the sentiment has softened," Mr Narayanaswamy said.